The US Federal Open Market Committee (FOMC) on March 18 kept benchmark interest rates steady for the second consecutive time, a move largely in line with market expectations given the increased risk of inflation driven by a war in the Middle East. At present, the target range for the federal funds rate stands at 3.5% to 3.75%.
The US Federal Reserve maintained a status quo on the federal funds rate for the second consecutive policy decision. In its January meeting, too, the central bank chose to leave rates unchanged after reducing rates in three consecutive policy meetings in September, October, and December 2025.
Notably, policymakers see the possibility of one 25 basis points rate cut in 2026 and one cut of the same magnitude next year. Besides, no policymakers indicated a preference to raise rates this year.
Just a month ago, before the war in the Middle East began, market participants were expecting at least two rate cuts of 25 basis points each in 2026, with rate reduction starting in the second half of the year.
The FOMC, which voted by an 11:1 majority to keep rates steady, noted that the impact of the ongoing war in the Middle East on the US economy cannot be assessed at this juncture.
The central bank expects inflation to rise this year. It revised its PCE inflation projections slightly upwards to 2.7% by the end of 2026. However, the Fed projected inflation may ease gradually to around 2.1% by 2027.
Meanwhile, the outlook for growth was revised to 2.4% from the 2.3% projected in the December policy meeting. The unemployment forecast was kept unchanged at 4.4% for the end of 2026.
How can the US Fed policy decision impact the Indian stock market?
The interest rate decision of the US FOMC was on expected lines. However, Fed Chair Jerome Powell sounded cautious due to the steep rise in crude oil prices driven by the US-Iran war. This could have a limited impact on the market.
Following the Fed policy announcement, the US dollar index jumped by 0.70% to 100.31, and the benchmark 10-year bond yield rose by about 0.30% to 4.27%. S&P 500 and Nasdaq crashed 1.36% and 1.46%, respectively.
However, the market reaction is not only to the cautious tone of the Fed. A fresh escalation in the US-Israeli war against Iran and a sharp jump in crude oil prices are the bigger worries for the markets.
Brent futures surged more than 8% to rise to nearly $112 per barrel after a strike on one of Iran’s major gas facilities. According to news agency Associated Press (AP), Iranian President Masoud Pezeshkian has warned of “uncontrollable consequences” that “could engulf the entire world.”
As per media reports, Iran has warned the public to evacuate areas near key oil and gas facilities in Saudi Arabia, the United Arab Emirates and Qatar, signalling an imminent strike.
Experts say this is not a policy-driven market, but a market which is focusing more on fundamentals.
“The Fed didn’t move today—but it didn’t need to. This is a central bank that’s comfortable waiting, watching, and staying flexible. One projected cut tells you everything: the Fed is not in a rush, and neither should investors be. This is no longer a policy-driven market—it’s a fundamentals-driven one. The next phase belongs to companies that can grow without relying on lower rates,” Gina Bolvin, President of Bolvin Wealth Management Group, noted.
Experts say the biggest worry is the ongoing war, and a slightly hawkish Fed is not a concern for the Indian stock market.
Gift Nifty crashed more than 500 points overnight, indicating a gap-down opening for the Indian stock market. Experts believe the market’s focus is expected to stay less on the Fed policy outcome and more on the crude oil price trajectory and geopolitical developments.
“The Fed policy outcome is not a major event for the Indian stock market at this juncture. The market is more concerned about oil prices and the war,” said G Chokkalingam, the founder and head of research at Equinomics Research Private Limited.
According to VK Vijayakumar, Chief Investment Strategist, Geojit Investments, the depreciation in the rupee and the potential impact of high crude prices on India’s growth and corporate earnings might prompt the FIIs to continue with their selling strategy in the near term.
“The near-term market trend will depend on how the war pans out and its impact on crude prices. The Fed decision and stance are unlikely to impact the market in any significant way,” said Vijayakumar.
However, Harshal Dasani, Business Head at INVasset PMS, highlighted that for Indian equities, the risk lies less in the status quo on rates and more in the Fed’s messaging.
“Fed’s firmer tone may drive US bond yields and the dollar higher, due to which foreign portfolio flows into emerging markets could come under pressure. That would be negative for Indian equities, especially rate-sensitive sectors such as financials, real estate and consumer discretionary,” Dasani said.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
